Archive for January, 2010



17
Jan
10

Moral rectitude: you’re doing it wrong

So with a good three-quarters of Memeorandum’s feed dedicated to the Senate race in Massachusetts, and the Chargers’ offense being utterly unwilling to pay attention to things like snap counts and play clocks, I find myself learning a lot more than I expected about the contest between the Coke party’s hard statist (Martha Coakley) and the Pepsi party’s medium-firm statist (Scott Brown).  Massachusetts being what it is, you’d expect this to be an entirely lopsided contest, but apparently Brown is making an awful pest of himself and Coakley is spending her time finding new and exciting ways to fuck up her campaign.

For example, the Coakley campaign tells me that Scott Brown wants to deny emergency medical care to rape victims.  Only, uh, not exactly:

The basis is a provision Brown voted for that would allow religious hospital staffers not to inform victims of the availability of the morning-after pill.

If you’re a politician running against a Republican, and you can nevertheless get Andrew Sullivan to call something you did “truly vile”, you have screwed the pooch in spectacular fashion.  I don’t at all like the provision for which Brown voted — it’s unclear whether emergency contraceptives like the ones in the bill permit fertilization and inhibit implantation; if not, arguing that Plan B and the like are abortifacients* is like claiming that a woman who refuses to sleep with you is killing your baby –but it’s nowhere close to what the Coakley mailer claimed.

Update: According to that heinous den of unreconstructed Repugnican thugs at the Washington Post, Brown voted in favour of the contraception bill after his amendment failed, and further voted to override Mitt Romney’s veto thereof.  But let’s not allow something as trivial as the historical record to get in the way of a good hit piece, eh?

I’ve also learned from the hur-hur-it’s-a-pun-geddit? Blue Mass Group that Scott Brown “thought maybe Obama was born out of wedlock”.  Uh, okay; I’m glad we cleared that one up.  A Pepsi-party politician who had Obama Derangement Syndrome in 2008; stop the fucking presses.

So far we’re batting two for two on obsession with conception.  Let’s check in on the other side of the fence, where the Brown campaign reminds us that Martha Coakley prosecuted recovered-memory Satanic-child-abuse cases with particular zest and verve back when it was the “in” thing to do in the Eighties:

Oh, wait: that’s not the Brown campaign, it’s libertarians Radley Balko and Michael Moynihan.  Well, everyone knows that libertarians are practically Pepsi-party hacks, with all their support for ending the drug war and opening the borders and recognizing the right of same-sex couples to marry and all that.  But really, all these stories show is that while Brown wants to hinder rape victims, Coakley wants to help them.  She wants to help them so much that she’ll throw their families in jail even if they weren’t raped in the first place:

While the Amirault case has received the most coverage, there’s also the case of Ray and Shirley Souza, who were accused of molesting both their children and grandchildren. As with the Amarault case, no credible physical evidence existed of sexual assault—but that didn’t stand in the way of the hyper-ambitious Coakley. “What we have are 6- and 7-year-old female children testifying credibly about incidents in the recent past.” Those credible incidents included being forced to drink a “green potion” before being inappropriately touched, being molested by a giant robot, and Ray Souza putting his head in his granddaughter’s vagina and “wiggling” it around.

The Amiraults and Souzas were railroaded; there lives were ruined. Coakley, always forthright about her political ambitions (in 2004, she announced that she would seek Sen. John Kerry’s seat if he won the presidency), stands by her overzealous prosecutions and defends the convictions.

And when those not-rapists are shown to be, well, not rapists by higher standards and better evaluation of evidence, Coakley stood by her convictions (heh) and kept them in prison:

Despite a parole board’s 5-0 recommendation to grant Gerald Amirault clemency and mounting doubts about the evidence against him, Coakley publicly and aggressively lobbied then-Gov. Jane Swift to deny Amirault relief. Amirault remained in prison.

Wall Street Journal reporter Dorothy Rabinowitz, who won a Pulitzer Prize for her coverage of bogus sex abuse cases, recently told The Boston Globe of the Amirault case, “Martha Coakley was a very, very good soldier who showed she would do anything to preserve this horrendous assault on justice.”

In fact, Coakley is so opposed to rapists — even if they never actually, you know, raped anyone — that she’s done everything in her power to prevent convicted inmates from being released:

Last year, Coakley chose to personally argue her state’s case before the Supreme Court in Melendez-Diaz v. Massachusetts. Despite the recent headlines detailing forensic mishaps, fraudulent testimony and crime lab incompetence, Coakley argued that requiring crime lab technicians to be present at trial for questioning by defense attorneys would place too large a burden on prosecutors. The Supreme Court found otherwise, in a decision that had Justices Clarence Thomas and Antonin Scalia coming down on Coakley’s left.

The Melendez-Diaz case wasn’t an anomaly. Coakley has made her reputation as a law-and-order prosecutor. More troubling, she’s shown a tendency to aggressively push the limits of the law in high-profile cases and an unwillingness to cop to mistakes — be they her own or those of other prosecutors. Coakley’s most recent high-profile case was the “Aqua Teen Hunger Force” hoax, in which she defended Boston authorities’ massive overreaction to harmless light-emitting-diode devices left around the city as a promotional gimmick.

[...]

It’s probably not surprising, then, that as DA in Middlesex County, Coakley opposed efforts to create an innocence commission in Massachusetts, calling the idea “backward-looking instead of forward-looking.” Of course, that’s sort of the point — to find people who have been wrongfully convicted. So far, there have been at least 23 exonerations in Massachusetts, including several in Coakley’s home county.

But hey, if it saves just one child from being raped, it’s worth it, right?  Sure, Coakley was perhaps overzealous in her prosecution of… well, damn near everyone.  But isn’t that better than the alternative?  Better a thousand innocents are put in jail than a single guilty man walks free, amirite?

Um.

Yep, Radley Balko again:

Moreover, Coakley’s also being criticized for failing to bring charges against a man who sexually assaulted his young niece with a curling iron. Coakley’s successor put him away for two life terms. Why would Coakley—so aware of the political pressure to be tough on crime, so protective of her own ambition for higher office, and who carefully cultivated an image for herself as a defender of children—not throw the book at a man accused of raping a toddler with a curling iron?

I dunno, was the case against him based on dubious and discredited forensic methodology?  Was he a pariah in his town, railroaded by public opinion run amuck?  Did he fall down a few too many flights of stairs en route to the courthouse?

I’m just guessing here, but it may have something to do with the fact that Keith Winfield was also a police officer. That suggests a blind allegiance to law enforcement that we should find troubling in a U.S. Senator who will be making and voting on criminal justice policy.

…oh.  Nice.

But the top step on the podium in the “doing it wrong” Olympics goes to M. LeBlanc:

A controversial bronze medal goes to commenter Alice, who looks at Coakley’s prosecutorial record and wonders (among other things; I’m running long and editing aggressively; RTWT for proper context):

But I’m a math person, and my only familiarity with how the law is “supposed” to work is from my instincts and, well, stuff I read on blogs. Is it the DA’s job to always push on the side of the state (i.e. keep people in prison), even when the trial is over and new evidence says they were wrong? That’s kind of fucked up, but I guess I’m more okay with Coakley’s actions if they’re the norm. Kinda.

Oh, grotesque abuse of authority is “kinda” okay if it’s the norm? How can I reply to that without Godwinning myself?

Aha! Female circumcision.  That must be okay in societies where “it’s the norm”, right?  I mean, who are we to tell people that pouring carbolic acid on little girls’ clitorises is wrong, like we have some sort of monopoly on moral judgement?

(Disclaimer: I’m almost certainly voting for Coakley anyway. I just want to feel better about my vote.)

Disclaimer: I’m also a math person, and I don’t have any problem recognizing that keeping innocent people in prison is more than “kind of fucked up”.  Die in a fire.

The silver medal goes to Coakley herself, in a nail-biting decision that came down to the possibility that Coakley knew she was doing the wrong thing, but did it anyway for political gain.  The possibility that Coakley might one day feel remorse leaves open the possibility that her (still mostly hypothetical) morals might prevent her from doing something heinous as a Senator.  Maybe.

This leaves LeBlanc with the gold medal for s/h/its servile and Quislingesque defence of Coakley’s record.  We begin four paragraphs into the blog post proper, with this fascinating assertion:

So, what’s the moral status of advocating that someone who is likely innocent remain in prison? It’s a tough question.

No.  No, it isn’t.  Advocating that someone who is likely innocent remain in prison is morally wrong.  How could one possibly think otherwise?

As far as I known, it’s something that’s routinely done by prosecutors everywhere. In Illinois, the only place I’ve practiced, the prosecutors oppose all parole petitions, as far as I know.

Oh, I see.  “Everyone else is doing it!”  Or at least, everyone in Illinois is doing it.  Yeah, the state where cops fight to remain unaccountable for their actions and State’s Attorneys hassle journalism students for exposing wrongful capital convictions.  What a wonderful standard you set for prosecutorial conduct!

But let’s continue.

I don’t have a major problem with prosecutors who lobby for people to serve more time in prison, whether it’s at the indictment, sentencing, or parole stage. My main concern is with systems that are overly deferential to prosecutors, that disadvantage defendants, and that make it extremely difficult for convicts to make the case for their own parole.

Would this include systems where Attorneys General lobby Governors to specifically overturn unanimous parole board decisions that might maybe make them look bad?  ‘Cause that’s what you’re defending, LeBlanc.

Nevertheless, being a prosecutor who is stalwart when presented with evidence of innocence or prosecutorial misconduct is so common as to be banal.

Banal?  You did that on purpose.  (And again, “everyone else is doing it” is no excuse.)

Which is why I think her lobbying for Amirault’s continued incarceration isn’t, in itself, enough to make her a morally suspect choice for senator.

Sure it is.

So, at the end of a day of political hysteria and mediocre football (dear Cowboys defence: what the fuck were you thinking?), I find myself in the unlikely position of cheering on a Pepsi-party statist candidate who actually appears to have a chance at a Senate seat in Massachusetts.

——

* Which only makes sense under the assumption that life begins at conception… but the ethics of abortion are a whole ‘nother post

15
Jan
10

Further to that bank tax

Greg Mankiw says what I was trying to say, only better and with more examples:

One thing we have learned over the past couple years is that Washington is not going to let large financial institutions fail.  The bailouts of the past will surely lead people to expect bailouts in the future.  Bailouts are a specific type of subsidy–a contingent subsidy, but a subsidy nonetheless.

In the presence of a government subsidy, firms tend to over-expand beyond the point of economic efficiency.  In particular, the expectation of a bailout when things go wrong will lead large financial institutions to grow too much and take on too much risk.

[...]

Alternatively, we can offset the effects of the subsidy with a tax.  If well written, the new tax law would counteract the effects of the implicit subsidies from expected future bailouts.

Will the tax law in fact be so well written?   It certainly won’t be perfect.  But it is possible that it will be better than doing nothing at all, watching the finance industry expand excessively, and waiting for the next financial crisis and taxpayer bailout.

RTWT.  Still based on the assumption that only the “too-big-to-fail” banks that received TARP funds will pay the new tax — or, as Mankiw points out, that the bank tax is a preëmptive effort to offset incentives from future bailouts.  (Will the latter interpretation backfire?  I can see banks treating this as a finance-sector Social Security programme: “We paid the bank tax, so we’ve earned a bailout!”)

“It might be better than doing nothing at all” is about as optimistic a conclusion as I can find.

14
Jan
10

Tidbits on taxation

A few things here, all vaguely on the theme of “if you want less of something, tax it”.

——

First, Felix Salmon discusses the proposed “bank tax”.  I find myself in partial agreement but with significant reservations; this is pretty much what happens every time I read Felix Salmon’s column.

Here’s how it’s described:

[E]ssentially, it’s a 0.15% tax on bank liabilities excluding deposits (which already come with an FDIC fee attached). It would be paid by roughly 50 firms, including GE Capital, and would raise something on the order of $90 billion over 10 years. That’s an average of $180 million per firm per year, which seems eminently affordable to me.US subsidiaries of foreign banks like HSBC and Deutsche Bank will be taxed; it’s unclear whether foreign subsidiaries of US banks will be as well. The aim of the tax is to ensure that the entire TARP fund gets repaid in full — not just the money lent to the banks directly, but also the money lent to the banks indirectly, through the AIG bailout. The tax is not, however, designed to repay the cost of rescuing Fannie and Freddie.

I like the way the tax is structured: it’s simple, and the liabilities-minus-deposits formula naturally puts more of the onus on investment banks than commercial banks.

Well, so far so good.  Felix doesn’t address Coyote’s objection that, if the tax is meant to repay TARP, it should be levied only against banks that participated in TARP*, but other than that it seems pretty moderate as taxes go.  The implementation, so far at least, looks pretty simple and not obviously easy to game.  And if the legislation is actually written to self-destruct — er, “sunset” — when TARP has been repaid, I could actually get behind the concept as sound fiscal planning rather than yet another cash grab.  (That’s a big “if”, but stranger things have happened.)

Now, on to the effects.  If you buy the idea that the TARP bailout recipients will be hardest-hit by this tax, and that it will in fact go away once TARP has been paid off, it might actually mitigate the moral hazard inherent in “too big to fail” and the associated blank-cheque expectation of government backing.  For banks, at least; clearly, it’s sending the opposite message to companies that think of themselves more like General Motors (“Fuck up, and we’ll make the banks bail you out!”).  Felix suggests:

It also encourages banks to fund themselves with equity rather than debt.

I’m not entirely convinced that debt financing was itself the problem; it seems to me that relaxed (to say the least) underwriting and securitization standards, combined with incentives that concentrated debt in the residential housing market, were more to blame for the credit crisis than simply skewed debt-to-equity ratios.  Then again, I know barely more than fuck-all about finance, so don’t bet your house on my opinion.

Then we get this:

Will the fee be passed on to bank customers? Well, it doesn’t apply to deposits, so retail banking customers shouldn’t be affected, but you never know. If they are, at the margin that might be no bad thing, if it encourages bank customers to move their money to small-enough-to-fail banks and credit unions.

Um.  Money is fungible.  Let’s restate the question: what’s stopping banks from raising fees to recoup the tax?  If the answer is “at the margin, some customers will switch to smaller banks”, I submit that most customers won’t, and most large banks will cheerfully hike their rates and surcharges even further.

So it could turn out to be a welcome nod in the direction of actually paying our bills and mitigating too-big-to-fail moral hazard, but I’m not gonna hold my breath.

——

Next we look at the proposed tax on “Cadillac” health insurance.  Coyote explores the incentives that led to (and are now leading away from) gilt-edged employer-sponsored health benefits:

History teaches us that tax policy has a huge effect on behavior.  Witness the fact that so many people rely on their employer for health care.  As we see today, this is a really bad idea, but it was hatched because tax law provided incentives for paying compensation in the form of health insurance premiums, since these are not subject to either income or payroll taxes.

Already, employers are offering employees what are effectively buy-outs of health care — higher pay in return for reduced health care benefits.  For employers, the upside risk on health care costs now outweigh the tax advantages of health insurance as a compensation tool.  Given this trend, what do you think will happen when employees suddenly have the same incentive, to roll back health care coverage to get under whatever bar is set for an insurance package Congress thinks is too rich (hint:  wherever the bar is set, it will be below the health insurance Congress provides itself).  Employers and employees are now going to have a shared incentive to back off on health care benefits in exchange for more cash.

I’m given to understand that those insurance-premium tax incentives are one reason why individual health insurance is so expensive (sorta like business class airplane tickets: they’re targeted at people who’re paying with company funds).  If that incentive goes away for many-benefits coverage, will the price of high-end health insurance come down?  Or will the insurance companies just offer less and less of it?  Either way, planning on the “Cadillac tax” income seems like a remarkably bad idea.

Of course, we should be calling it the “Lexus” insurance plan tax, not the “Cadillac” tax — seems that labour unions have negotiated a two-year tax exemption on their plans, so the folks building Caddys won’t be penalized:

This is of course business as usual.  (It might be heartening to labour advocates that the larger unions wield — and are seen to wield — just as much lobbying clout as the large corporations whose power they’re said to offset.)  It may also be unusually bad timing:

This may backfire.  If you think that the Nebraska deal was unpopular, just wait until the administration announces higher taxes on everyone but its friends in the labor movement.  We may see if the popularity of the health care bill still has room to fall.

The more I think about this, the more I think it’s a huge mistake.  Support for unions is at a record low, and the GM deal has already made people think that the Democrats are doing sweetheart deals for Big Labor with our money.  Republicans will have a field day.

Next question: has the Republican brand disintegrated to the point where even stuff like this can’t help them?  I could be convinced either way.

——

* And a pair of car companies we all know and loathe

13
Jan
10

Mid-week misanthropy, vol. 52

So apparently I haven’t written one of these since October.

——

We begin with this post from Coyote Blog, wherein the myth of passenger rail travel gets skewered once again:

In reaction to Joel Epstein’s giddy obsession with the People’s Republic of China and its massive state-run infrastructure projects, Coyote writes:

Epstein, like [Thomas] Friedman, seems to think that the US is somehow being left behind by China because its government builds much more stuff.  We are “asleep.”  Well, I have a big clue for him.  Most of the great progress in this country was built when the government was asleep.  The railroads, the steel industry, the auto industry, the computer industry  –  all were built by individuals when the government was at best uninvolved and at worst fighting their progress at every step.

Epstein in particular thinks we need to build more trains.  This is exactly the kind of gauzy non-fact-based wishful thinking that makes me extremely pleased that Epstein in fact does not have the dictatorial powers he longs for.   High speed rail is a terrible investment, a black hole for pouring away money, that has little net impact on efficiency or pollution.   But rail is a powerful example because it demonstrates exactly how this bias for high-profile triumphal projects causes people to miss the obvious.

Which is this:  The US rail system, unlike nearly every other system in the world, was built (mostly) by private individuals with private capital.  It is operated privately, and runs without taxpayer subsidies.    And, it is by far the greatest rail system in the world.  It has by far the cheapest rates in the world (1/2 of China’s, 1/8 of Germany’s).  But here is the real key:  it is almost all freight.

(Emphasis in the original.  That first “[Thomas] Friedman” link goes to my comments on the Friedman article with which Epstein seems to be enamoured, and is not in the original.  I’m tricky that way.)

Freight rail, as Coyote explains, is an efficient — and profitable, which if you’ve been keeping score from home means that people like it enough to pay the full cost and more without being compelled to do so — way to move large chunks of stuff.  Passenger rail, on the other hand… not so much:

Most of the energy consumed goes into hauling not the passengers themselves, but the weight of increasingly plush rail cars.  Trains have to be really, really full all the time to make an energy savings for high-speed rail vs. cars or even planes, and they seldom are full.  I had a lovely trip on the high speed rail last summer between London and Paris and back through the Chunnel — especially nice because my son and I had the rail car entirely to ourselves both ways.

I think people like Epstein look at electric passenger high-speed rail and marvel at how clean it all is.  No big clunky internal-combustion engines, no clouds of diesel exhaust or towers of sooty smoke; just the startup whine of beefy transmissions clearly audible over the whisper of electric motors.  It’s all very space-age* and inspiring.

Look how clean that electric power is!

Where did you think electricity came from?  Unicorn farts?

Now take a look at that coal-fired power plant, and consider that better than three quarters of the power produced thereby is spent heating up transformers and power lines.  That high-speed train from Pudong into Shanghai really makes sense now, doesn’t it?

——

Meanwhile, Pat Robertson is still an asshole:

I shit thee not.

The Rev. Pat Robertson, on his CBN broadcast today, offered his own explanation of the earthquake in Haiti:

“Something happened a long time ago in Haiti, and people might not want to talk about it,” he said. “They were under the heel of the French … and they got together and swore a pact to the devil. They said, ‘We will serve you if you’ll get us free from the French.’

“True story. And the devil said, ‘OK, it’s a deal,'” Robertson said. “Ever since, they have been cursed by one thing after another.”

Stay classy, Pat.

——

In other news, Derek Lowe takes it to a pair of tin foil-coiffed hysteria-mongers:

First, Dr. Lowe savages a British health blogger who suggests that teh ebil pharma industry will suppress a paper suggesting that cell phone emissions could have a beneficial effect on Alzheimer’s patients.  See, they want to keep selling you their existing, profitable drugs, which is why they’re sinking millions into research on new Alzheimer’s drugs… uh, wait; that doesn’t make sense, as the good Dr. points out.

Next, he tees off on an excitable German politician who insists that the swine flu scare was a “manufactured epidemic” designed by teh ebil pharma industry to sell more Tamiflu.  Dr. Lowe objects:

The World Health Organization is now fielding questions about whether they oversold the epidemic, but it’s a sure bet that (if it taken off more drastically) they’d be fielding even more about why they weren’t prepared for it. At any rate, if you think that the Monolithic Drug Industry can simultaneously push around the WHO, the CDC, and the public health agencies of every other country in the world, I invite you to think again. If we could do all that, we’d at least be in good enough financial shape that we wouldn’t be laying thousands of people off and doing ridiculous mergers out of desperation.

Commenter “You’re Pfizered” elaborates:

When H1N1 was starting to make itself known, the world was begging pharmaceutical companies to get on the train and save the world. Now we are the producers of a false pandemic to make even more money. Damned if you do, damned if you don’t. It’s not quite as bad as the mythology that we all have the cure for cancer locked in our ELNs, but don’t want to give it out for fear of killing the golden goose….

But never mind the circumstances: prevailing wisdom is that drug companies are villainous cesspools of festering evil, and prevailing wisdom has never been wrong before.  Has it?

——

Finally, well….

James Cameron’s completely immersive spectacle “Avatar” may have been a little too real for some fans who say they have experienced depression and suicidal thoughts after seeing the film because they long to enjoy the beauty of the alien world Pandora.On the fan forum site “Avatar Forums,” a topic thread entitled “Ways to cope with the depression of the dream of Pandora being intangible,” has received more than 1,000 posts from people experiencing depression and fans trying to help them cope. The topic became so popular last month that forum administrator Philippe Baghdassarian had to create a second thread so people could continue to post their confused feelings about the movie.

“Depression and suicidal thoughts.”  Over a science-fiction movie that has the gall to be fictional.

I say we ship these people a 60ct bottle of Valium and a fifth of vodka and get them the fuck out of the gene pool.  I’ll kick in twenty bucks; who’s with me?

——

* Yes, I know that the space age was somewhere between 1960 and 1990, and yes, I did that on purpose

12
Jan
10

Continued destruction of value

A while ago I argued that value isn’t zero-sum — the value of a given product can be more than the sum of its inputs.  Well, it cuts both ways.

Let’s have a thought experiment.  Suppose I approach you with a compelling offer: I’m going to make you the most unique and delectable sandwich ever.  It’ll take months of experimentation, of course, but I have a plan — and can show you a list of potential ingredients ranging from Kobe beef to French truffles to the finest applewood-smoked bacon — and a lot of confidence.  Accepting your stipulation that the final sandwich include bacon (as all good sandwiches ought), I guarantee a sophisticated epicurean experience unlike any you’ve ever tasted.  All you have to do is foot the bill.

Months go by.  I send you itemized receipts for filet mignon, Ahi tuna, fresh asparagus (out of season!), and other more exotic ingredients.  These are accompanied by tasting notes such as “too pungent”, “coppery when paired with beef”, and the occasional “brilliant; compliments dark chocolate exquisitely”.  These communications build in you a mounting frenzy of anticipation.  What form could this ultimate sandwich possibly take?  You sign off on each receipt eagerly as my costs run into the thousands of dollars.

Finally, the presentation: Beaming with pride, I place before you, ensconced between two hearty slabs of rye bread and swaddled in bacon and a tasteful arrangement of arugula, the world’s most expensive shit sandwich.  As you work your way from horror to rage, I explain that I’ve been gorging myself on the fine ingredients you bought me and carefully pairing and combining the resulting feces into what I claim is the masterpiece I’ve set before you.

Then you punch me in the mouth.

What’s the value of this shit sandwich?  Unless you’re an epicurean coprophage, probably negative — I suspect most people would pay to not be served a shit sandwich if they couldn’t otherwise avoid it.  The facts that its ingredients cost thousands of dollars, and that its construction has kept me employed for the better part of a year, are utterly beside the point.  I have, quite flagrantly and thoroughly, destroyed the value of those marvelous ingredients and the value of my time and effort.

Now we pass into the analogy segment of this blog post.  You are the American taxpayer; I am General Motors; and the shit sandwich is GM’s 2010 model-year lineup.  (Automobile enthusiasts might note that the strips of bacon correspond to the Corvette, and the slabs of rye to the Camaro and CTS-V respectively.)

Let’s back up for a bit.  The good news is that, to my surprised delight, the U.S. Treasury is actually making a profit on some of its investments as part of the TARP bailout.  The bad news, of course, is that AIG and GM (and, oh yeah, Chrysler — do we still give a shit about Chrysler?) are losing money far faster than those investments can recoup it:

The Treasury estimated net losses on its $700 billion bailout program at $68.5 billion for the fiscal year ended September 30, 2009.

The December report for the Troubled Asset Relief Program, or TARP, showed that the fiscal 2009 net loss included estimated losses of $30.4 billion for AIG and $30.4 billion for automakers, with $27.1 billion in losses from the Home Affordable Modification Program.

These were much larger than a $15 billion profit registered from the Capital Purchase Program for banks and $4.4 billion in profits from other bank investments, asset guarantee and lending programs.

AIG has to be pretty fucking awful to destroy value as quickly as GM and Chrysler combined.  Still, it’s encouraging to note that if we could somehow sever ourselves from those three corporations, we’d be able to claw back — slowly but surely — some of that $700,000,000,000 figure in the form of honest profit rather than seizing it by the usual force of state.

All of that, however, makes this next bit even more obnoxious:

The LA Times-sourced story begins thus:

WASHINGTON – Obama administration officials and lawmakers are scrambling to find a way to funnel some of the financial industry’s record earnings back to the taxpayers who helped rescue the industry from looming disaster.

MISSION ACCOMPLISHED!  Someone land on a carrier.  The US Treasury earned $19,400,000,000 on its TARP investments; all y’all have to do now is apply that to the deficit and we’re golden.

Something tells me that’s not what the administration has in mind.

The White House is considering a fee on banks and other financial companies as one approach, with revenues earmarked to help recoup any losses from the government’s $700 billion bailout fund, a senior administration official said.

…oh.  That’s special: we’re going to go after the one part of the TARP bailout that’s actually posting a positive return on investment for us.  Brilliant fucking incentive, there.

Er, wait… the proposed fee is only being levied against banks that participated in TARP, isn’t it?

Isn’t it?

Note that there is no attempt here to only charge banks who received bailout money, but all banks will be charged equally.  To each according to his need, from each according to his ability.  This is moral hazard in spades.

Dear Mr. President:

More commentary from Megan McArdle:

So we ought to tax bank profits because . . . GM is losing money just like everyone said it would.

I am all for regulation which prevents banks from taking on too much leverage–or encouraging others to do so by offering stupid loans. I would very much like to find a system of financial regulation which results in a financial structure that isn’t so utterly dominant (and bloated) as it has been for the last two decades.  But I’m failing to see why the banks in particular–or rather the customers of the banks who will enjoy higher fees and lower interest rates–ought to bear the financial cost of the Administration’s ill-advised bailout of the UAW.

So am I.

11
Jan
10

Miscellaneous Monday motorsports mumblings, vol. 26

Less than twenty days ’til the 2010 Daytona 24 Hours.

——

Why was I not informed of this when it began?

Jersey Tom, if you have an odd set of priorities that doesn’t involve scavenging the f1technical forums for automotive trivia, is a Formula SAE ninja and an insightfully iconoclastic vehicle-dynamics commentator.  For example:

The thing that I’m not convinced of are the “conventional wisdom” that toe-out on the front “helps turn-in,” toe-in on the rear “helps rear stability,” and that any amount of toe-out rear is going to make the car a bitch to drive. The reasons why are not obvious to me at the moment. I’ll have to think about that. With the rear tires anyway, if they don’t peak at the same point (and chances are with your luck they won’t) you’re invariably leaving grip on the table unless you can split the slip angles a bit!

Heresy!  Heresy! But, er… yeah.  I don’t get it either.  (Two paragraphs previously, JT — with a bit of help from Milliken — finally made me understand why anyone would bother with anti-Ackermann steering geometry; it’s all about load vs. slip angle.)

Needless to say, I’ve added his blog to the motorsports section to the right.

——

Meanwhile, it looks like Formula One is going to be getting a new and improved points system:

Rather than the 12/9/7 system proposed last year, we’re getting something that reminds me of CART:

The race winner will claim 25 points, the runner-up 20, third place 15, fourth place 10, fifth place will take eight, and then sixth to 10th would earn six, five, three, two and one point respectively.

I don’t understand the reasoning behind the two-point jump from 7th to 8th, but otherwise I like it.  Passes for podium positions are worth 5 points apiece — I think it’s perfectly reasonable to stretch out the rewards for finishing at the front of the pack — and the points-paying positions are stretched a bit back in the order, though with less impact.  More passing?  Harder-fought races?  It wouldn’t surprise me at all.  This points structure gives more people a reason to push harder, particularly as the 2007 and 2008 WDCs were decided by a single point each.

Speaking of single points, the 25/20/15 system might not be the end of the story:

In 2010 drivers could be awarded points for pole position and the fastest lap, according to Ferrari team principal Stefano Domenicali.

A reward for fastest lap makes reasonable sense to me, but I’d have thought that starting the race in P1 was reward enough without incentivizing it further.  (Note also that this comes from the Ferrari F1 team boss, which predictably sent the Planet-F1 commentariat into conspiracy-theory overdrive.)

Still, opening up the points system seems like a good idea when the grid expands to 26 cars.

——

Whoops, did I say 26 cars?  Looks like I meant 24 cars:

Some of you might recall that both Lola and Prodrive lobbied for admission into Formula One when The Bernie announced that he’d expand the series.  Now, Lola and Prodrive are both well-established racing shops with plenty of talent and infrastructure, and I don’t doubt that they’d make the back third of the grid more exciting from the get-go.  But in his infinite hubris wisdom, The Bernie rejected their appeals and went with Campos Meta instead.

Oops.

In recent weeks, the team’s place on the 2010 grid has been thrown into doubt with F1 supremo Bernie Ecclestone questioning whether they will even make the grid at the season-opening Bahrain Grand Prix.

The team, though, is confident they will be on the grid but are seriously seeking a financial boost, which could come through the sale of the F1 team.

Ironically, the last time this happened (not counting Spyker/Super Aguri) was in 1997 with… MasterCard Lola.

Still and all, last year about this time I was predicting the inevitable demise of Honda F1, and that turned into BrawnGP and won the WDC and WCC.  Unless Campos have been developing their car for the past 3 years as well, I don’t expect a repeat performance, but it’s worth reminding oneself that the usual rules of finance seem to go utterly fucko bazoo when it comes to Formula One.

10
Jan
10

Too much planning is never enough

Lately I’ve been fiddling with a game called Dwarf Fortress.  It’s a sprawling project, but its main attraction is the eponymous “fortress mode”, which the wiki describes thus:

In fortress mode, you pick a location, then assign your seven initial dwarves some starting skills, equipment, provisions, and animals to bring along. After preparations are complete and your hardy explorers depart, they’ll be faced with the fortress site you picked down to every detail, from geologically appropriate stone types to roaring waterfalls to ornery hippopotamuses.

Playing

Your view of the in game world is that of a multi-layered environment which you can move north, south, east, and west, as well as up and down. Dwarves are represented by little faces, rocks by blackness and open space by blueness. There is a command menu that lets you set commands that your dutiful dwarves will attempt to follow.

Briefly, fortress mode is an idealized sandbox for petty Stalinists.  You plan damn near everything about the fortress, from the skills and equipment of your starting party to the locations of mine shafts to the crop rotations in your underground farms.  If you want to smelt steel (and you do — steel arms and armour are vital for repelling goblin sieges), you first order the production of charcoal (from wood) or coke (from bituminous coal), then the smelting of iron from ferrous ore, then the production if pig iron from some of the iron bars you’ve smelted (being careful to maintain proper stocks of iron, coal, and flux), and finally the production of steel.  Now you have a steel bar, and can order your weaponsmith to turn it into a warhammer.

So how is this idealized?  To start with, the problems of scale are vastly reduced: you begin with seven dwarfs, and max out at two hundred (some of which will be useless apparitchiki).  Dwarfs eat about four times a year, drink twice as much as they eat, and work nearly tirelessly on whatever mad scheme you’ve set forth.  Most importantly, you can pause the game whenever you like to review the state of your fortress, order new construction, and reassign dwarfs as you see fit.

The Dwarf Fortress community has a motto:

Losing is fun.

There’s always something going wrong.  Maybe one of your miners dug himself into a cave-in because you neglected to consider the layer above when you told him where to dig.  Maybe you ran out of coal, and can’t forge any more steel until you burn some wood to charcoal.  Maybe you ran out of seeds and can’t plant the next harvest.  Maybe you delved too greedily, and too deep, and woke the ancient evil.  There’s always something going on that you failed to foresee, failed to plan for.  Some of this stuff — goblin sieges, volcanic eruptions, or hordes of murderous elephants — are impossible to predict.

Once you get past a certain level of central planning in any system, you always need more planning.  The planned system is too rigid to allow individuals to react on their own, so everything devolves to a central authority.  But for real countries, losing isn’t fun:

Consider, for example, Venezuela’s incipient electricity shortage:

(Hat tip: Tyler Cowen)

Chavez on Friday said his government is determined to keep Guri Dam from falling to a critical level where the turbines start to fail in the next several months. He has also imposed rationing measures that include penalty fees for energy overuse, shorter workdays for many public employees and reduced hours for shopping malls.

The entire South American country of 28 million people depends to a large degree on the massive Guri Dam, which holds back the Caroni River in southeastern Bolivar state. It supplies 73 percent of the country’s electricity by feeding the massive Guri hydroelectric plant — the world’s third-largest in power output — along with two other smaller plants.

In Venezuela, rivers and water levels are things to be commanded by the state:

”We can’t allow the water to reach this level,” Chavez said. He said officials are aiming to prevent it by diminishing power generation at Guri and decreasing the flow of water that moves through the turbines.

Government officials say their rationing plan should help the country reach May, when seasonal rains are predicted to return. But even Chavez concedes the situation is serious. His past efforts to solve the problem have included sending cloud-seeding planes to produce rain with the help of Cuba.

[...]

The rationing has some concerned. Andres Perez, president of the industrial chamber in central Carabobo state, said he doubts Guri Dam will be permitted to fail[...].

“Butbutbut,” you say, “isn’t it true that centrally-planned electrical infrastructure can take into account projected usage from the whole country and deliver power more efficiently?”  Perhaps, if you can solve an impossibly large global optimization problem in real time with incomplete information (hint: you can’t).  But in Venezuela, at least part of the excess power consumption was planned into the system:

The government has also partially shut down state-run steel and aluminum plants.

The alternative — letting an independent group worry about the Guri powerplants and raise electricity rates as scarcity increases — is of course unthinkable.  Such a group would be expropriated within seconds of raising its rates.  So instead, after having planned out its power infrastructure, Venezuela’s government needs to plan its citizens’ power consumption with rationing and scheduled shutdowns.  And then it needs to plan around the consequences of said rationing and shutdowns, and so on ad infinitum.

Air travel security is beset by similar — but not identical — failures of planning.

Since 2001, airline passengers — regular people without weapons or training — have helped thwart terrorist attacks aboard at least five different commercial airplanes. It happened again on Christmas Day. […]

And yet our collective response to this legacy of ass-kicking is puzzling. Each time, we build a slapdash pedestal for the heroes. Then we go back to blaming the government for failing to keep us safe, and the government goes back to treating us like children. […] Since regular people will always be first on the scene of terrorist attacks, we should perhaps prioritize the public’s antiterrorism capability. […]

Despite the fantastically large air travel security establishment — and its clumsy post hoc regulatory patches — successfully thwarting terrorist attacks on airplanes remains a decentralized thing.  All the security planning — the new agencies, the onerous legislation, the widely-cast no-fly lists — put into place after September 11th, 2001 failed in damn near precisely the same way in December 2009.  Even NYT op-ed thickie Maureen Dowd can’t fail to recognize the problem:

“Rather than a failure to collect or share intelligence,” President Obama said, “this was a failure to connect and understand the intelligence that we already had.”

Wow. That makes me feel that all those billions spent on upgrading the intelligence system were well spent.

Umar Farouk Abdulmutallab’s father personally delivered a neon warning to our embassy in Nigeria, and a State Department employee quickly dropped the ball by misspelling the aspiring terrorist’s name, leading to the false assumption that he did not have a valid U.S. visa.

Border security officials figured out while he was in the air that the young man had extremist links, but inexplicably decided to wait until he landed to question him, failing to notify the pilot of his plane. After all, what harm could a foreign extremist bring to a plane over American soil.

So it wasn’t bureaucratic turf wars that caused the intelligence to fall through the cracks this time. The C.I.A. and counterterrorism agencies weren’t hoarding information and refusing to pool tips. They were just out to lunch.

And this is supposed to be progress?

I’d rather they were hoarding. It would be more reassuring to think our intelligence analysts actually knew what was going on but were hampered by power grabs than to think they were cooperative but clueless.

“Cooperative but clueless” sums it up rather nicely.

07
Jan
10

“Fee? Fie!” follow-up

Cato@Liberty has a pair of articles germane to the specifics of my previous post:

I didn’t address Rortybomb’s question because Megan McArdle did a better job.  Well, Jason Kuznicki does a damn fine job of adding to her answer.  (RTWT.)  Of philosophical interest:

I am always amazed at how border cases are dragged out, again and again, as if they proved something against libertarianism. Border cases — How old before you can vote? How demented before a contract doesn’t bind? — are a problem in all political systems, because all systems start with a presumed community of citizens and/or subjects. We always have to draw boundaries between the in-group and the outliers before we have a polity in the first place.What makes the classical liberal/libertarian approach so valuable is in fact that it draws so few boundaries. Where other systems depend on class boundaries, race boundaries, religious boundaries, and so forth — with annoying boundary issues at every stop along the way — libertarians make it as simple as I think it can be.

Also of note is that — at least in my Rothbardian little mind — the boundaries in a liberal system stem from inherent natural rights (to life, liberty, and property), whereas a more authoritarian system tends to draw boundaries where its authorities please.  I can’t think of a better invitation for regulatory capture.

Next, we have a post by David Boaz on (among other things) the unforeseen consequences of credit-card regulation:

Only after the fact were economists able to identify the specific costs of the regulation. It seemed like a good idea – limit the cost of something that consumers (voters) want. Did anyone predict the consequences? People probably predicted that annual fees would rise to compensate for the lost revenue from interchange fees. But did they anticipate a slowdown in innovation in security and identity-theft protection? Did they anticipate that card issuers would work harder to get higher-risk customers?

RTWT.  In general, I suspect that regulatory shake-ups like the ones under discussion tend to encourage “quick-fix” changes to restore revenue in the short term — hell, if the industry’s lobbyists are doing their jobs, the bills are probably written with quick-fix loopholes built in.  This will of course be most true for the big players in whichever industry’s being regulated: smaller players, and companies in less-influential sectors that depend upon the first, seem more likely to play it safe and reduce their risks.  Not what you’d prefer to happen in a recession!

In other news, Megan McArdle reports that the proposed “cheat the demented” scheme isn’t merely evil, it’s also mindbendingly stupid:

Today, an employee of a major bank emails:

About Andrew’s post on ripping off old, demented, credit card customers I’d like to point out that this would be not so much evil as really REALLY stupid.  Since credit card debt is unsecured, the credit losses on this scam would be enormous and would definitely lose  a lot of money.  Nevermind the moral aspect of this, the financials for such a program would fail miserably and anyone suggesting such a program would be scorned not just for being an immoral jerk but for having zero business sense.

D’oh!  Oh well, it’s not like I haven’t come up with utterly impractical thought experiments.  (In fact, skip ahead a few paragraphs and you’ll find one.)  Ms. McArdle also wonders:

[W]hat if we turn it around?  Should banks be allowed–nay, encouraged–to use such a quiz to pick out customers they no longer care to do business with?  After all, we’d be protecting potentially demented customers from hurting themselves.

Of course, we’d also be potentially preventing non-demented customers from getting credit–given my work schedule, I not infrequently forget which day of the week it is, and when you’re retired, one day can easily shade into another.

It gets better.  You should read the whole thing.  She concludes:

Yet this is the logic of paternalism:  you discommode a large number of people in order to save other people, possibly a smaller number of other people, from financial distress.  Methinks, however, that many people who like government paternalism would view it differently if it were done spontaneously by banks out of profit motive.

Finally, let’s indulge in an extended thought experiment.  The “price = overhead + small profit” model lends itself to an oft-indulged fairy-tale interpretation of high prices, particularly where high overhead is not obviously present (as in the Interlink fees tale).  Here, it becomes “obvious” that the small profit has swollen to become egregious and exploitative, and one imagines rivers of dollar bills sweeping through pneumatic tubes to land in a Scrooge McDuck-ish vault brimming with wealth and malign credit-card execs doing the backstroke.

Suppose for a moment that this is really how it works.

Now the government, which has been your friend since even before Captain America punched out Hitler, passes a bill regulating the credit-card industry.  Let’s further suppose that this bill is honest and fair and brimming with old-time values (except for old-time values like racism and wife-beating), and threatens to curb the excessive, misbegotten gains of those Smaug-like executives.  And it’s enforced by good men with badges and guns who only occasionally shoot an unoffending dog for looking like a pit bull in the dark.

What do you suppose those credit-card fat cats will do about it?

We’ve constructed our little straw-men-in-expensive-suits as evil caricatures, the very embodiments of avarice.  We can assume, then, that they’d first try to do the avaricious thing and maintain their profits (profits being, perforce, evil).  So rather than give up the lovely streams of cocaine-scented greenbacks showering their swimming pool, they’re going to recoup that profit somewhere else.  Maybe they slash the wages and benefits of the honest and hard-working blue-collar labourers whose ceaseless efforts underpin their profitability in this little Marxist fantasy of ours.  Or maybe, as Rortybomb not unpersuasively suggests, they go after rich seniors with advanced dementia and rob the poor blue-hairs blind.  Maybe they sell crack to puppies.

Or maybe they don’t.  This is a fairy tale, so let’s give it a happy Disney ending.

Maybe the shock of well-intended regulation gives them pause, and forces them to look deeply into their blackened hearts and withered souls.  Maybe they recognize that Michael Moore really is the modern Oracle of morality and that their quest for filthy lucre is the greatest evil in the land.  Shamed and chastened, they donate their ill-gotten gains to charity and adjust their profit margins to a bare minimum — something morally acceptable, like 0.5% per annum.  Then they pull on battered and dusty Victorian overcoats, whistle cheerful tunes, and head off to sweep chimneys or otherwise earn an honest living.

Then their adjusted earnings report falls into the shitter and the Dow collapses under this certain indication that a major sector of the banking industry is utterly and irretrievably fucked.  Pension funds and university endowments watch their investments sink into the mire of Washington’s malarial swamp.  Banks collapse.  Landlords are foreclosed upon, sending their tenants shivering into the wintry streets.  Panicked politicians declare Visa, AmEx, and MasterCard to be too “big to fail” and force-feed them trillions of dollars magicked into existence by the Federal Reserve, and China, India, et al. start wondering whether the U.S. Dollar is really the global reserve currency they want to hold.  Again.

Oops; looks like we missed Disney and ended up in Grimm.




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